KPMG warns of customs union exit risks

KPMG warns of customs union exit risks

KPMG’s Head of Customs, Bob Jones, warns that as the UK readies itself for Brexit, a transition period incorporating customs issues is needed so that authorities and businesses can make adequate preparations. Border authorities can expect an “unprecedented burden” on resources, and the cost of dealing with this new ‘friction’ will fall on business.

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Frictionless trade?

Outside the customs union, the default process for anyone wanting to move goods across UK/EU borders includes everything from correctly classifying consignments and submitting around 25 data elements to ensuring all regulatory documents have been completed and paying the correct amount of duties and taxes. Moving from genuinely frictionless trade with the EU to this default process can only result in a significant new burden for business.

“If a transition period isn’t agreed around customs, there is a huge amount of work to be done in a very short and frankly unrealistic timescale if we are to facilitate even a reasonably frictionless trading arrangement with the EU.

“Once we’re outside the customs union, companies wishing to import or export goods from the EU, might potentially achieve final customs clearance in seconds if they have the requisite data and processes in place. However, the processes don’t exist yet because they haven’t been agreed, and even when they are, in many cases the information submitted may not be complete, accurate and on-time.

“Ultimately the default procedure is highly complex, mistakes are not uncommon and this leads to delays. So the real cost of this new friction falls on businesses and impacts profit margins, supply chains, consolidated deliveries, inventory storage at borders and fulfilment delays.

“Added to this, in many cases UK/EU supply chains have become so interwoven that goods travel back and forth across the channel or Irish land border many times before final delivery. This means border authorities can expect to receive tens of thousands of new customs submissions every day, creating an unprecedented burden on resources. Overall, this means the UK government needs to wholeheartedly engage with its EU partners and business, to understand and agree what is needed, then design the best possible systems.”

Automating the process?

In order to avoid the delays inherent in a manual border clearance system, the process can be simplified and smoothed out using automation. However, this requires businesses to invest in new customs and duty management IT solutions.

Secretary of state for exiting the European Union, David Davis, has advocated “technical ways” of reducing friction at borders citing the examples of number plate recognition on vehicles, tagging of containers and trusted trader schemes. This means governments - particularly HMRC and the other EU customs authorities - need to have staff in place with the correct skills as well as the physical infrastructure, technology and processes before the UK leaves the EU. Recognising this point David Davis has said his team is aiming for a transition period of one to two years, though what is included in that transition is as yet undecided.

“Automating as much of the customs process as possible can go some way to easing the burden on companies and the authorities. But this will still be a far from frictionless process and what has yet to be factored in is the time needed to implement such changes.

“The new customs agreement the UK eventually arrives at with the EU defines the requirements, but the systems themselves can take a year to design, build, test and approve. With the current Brexit timetable and potentially no transitional period around customs, the timescales are looking extremely tight.

“What’s more, if businesses and governments fail to implement the right working systems by the time the UK leaves the customs union, we could see thousands of lorries being held up - already a frequent occurrence at the Turkey/Bulgarian border.

“The upshot is, that while a decision on whether the UK remains inside the EU customs union is extremely important, equally essential is the timing of that decision if we are to have an orderly Brexit for the movement of goods.”

About KPMG KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff. The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.